EP AUDITING+ASSURANCE...-MYACCT.LAB
16th Edition
ISBN: 9780134148656
Author: ARENS
Publisher: PEARSON CO
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Chapter 20, Problem 18.3MCQ
To determine
Identify the option that is considered as an improper segregation of duties related to the payroll function.
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Which of the following is a preventive control?a. Reconciliation of a bank account.b. Recalculation of a sample of payroll entries by internal auditors.c. Separation of duties between the payroll and personnel departments.d. Detailed fluctuation analysis completed by the CFO for revenue.
Which of the following activities most likely would be considered a weakness in an entity’s internal control over payroll?a. A voucher for the amount of the payroll is prepared in the general accounting department based on the payroll department’s payroll summary.
b. Payroll checks are prepared by the accounts payable department and signed by the treasurer.
c. The employee who distributes payroll check returns unclaimed payroll checks to the payroll department.
d. The personnel department sends employees’ termination notices to the payroll department.
nternal Control Questionnaire Items: Assertions, Tests of Controls, and PossibleErrors or Frauds. Following is a selection of items from the payroll processing internalcontrol questionnaire in Exhibit 5.15.1. Are names of terminated employees reported in writing to the payroll department?2. Are authorizations for deductions signed by the employee on file?3. Is there a timekeeping department (function) independent of the payroll department?4. Are timekeeping and cost accounting records (such as hours, dollars) reconciled withpayroll department calculations of hours and wages?Required:For each of the four preceding questions:a. Identify the assertion to which the question applies.b. Specify one test of controls an auditor could use to determine whether the control wasoperating effectively.c. Provide an example of an error or fraud that could occur if the control were absent orineffective.d. Identify a substantive auditing procedure that could detect errors or frauds that couldresult from…
Chapter 20 Solutions
EP AUDITING+ASSURANCE...-MYACCT.LAB
Ch. 20 - Prob. 1RQCh. 20 - Prob. 2RQCh. 20 - Distinguish among a payroll master file, a W-2...Ch. 20 - Prob. 4RQCh. 20 - Prob. 5RQCh. 20 - Prob. 6RQCh. 20 - Prob. 7RQCh. 20 - Prob. 8RQCh. 20 - Prob. 9RQCh. 20 - Prob. 10RQ
Ch. 20 - Prob. 11RQCh. 20 - Prob. 12RQCh. 20 - Prob. 13RQCh. 20 - Prob. 14RQCh. 20 - Prob. 15RQCh. 20 - Prob. 16.1MCQCh. 20 - Prob. 16.2MCQCh. 20 - Prob. 16.3MCQCh. 20 - Prob. 17.1MCQCh. 20 - Prob. 17.2MCQCh. 20 - Prob. 17.3MCQCh. 20 - Prob. 18.1MCQCh. 20 - Prob. 18.2MCQCh. 20 - Prob. 18.3MCQCh. 20 - Prob. 19DQPCh. 20 - Prob. 20DQPCh. 20 - Prob. 21DQPCh. 20 - Prob. 22DQPCh. 20 - Prob. 23DQPCh. 20 - Prob. 24DQPCh. 20 - Prob. 25DQPCh. 20 - The following are various asset misappropriations...Ch. 20 - Archer Uniforms, Inc., is a distributor of...Ch. 20 - Prob. 28DQPCh. 20 - Prob. 29C
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Similar questions
- Effective control over the cash payroll function would mandate which of the following?a. The payroll clerk should fill the envelopes with cash and a computation of the net wages.b. Unclaimed payroll envelopes should be retained by the paymaster.c. Each employee should be asked to sign a receipt.d. A separate checking account for payroll should be maintained.arrow_forwardControl risk is the risk that a material misstatement in an account will not be prevented or detected on a timely basis by the client’s internal controls. The best controlto prevent or detect fictitious payroll transactions is to(1) use and account for prenumbered payroll checks.(2) obtain authorization from human resources for hiring, pay rate, job status andtermination.(3) verify internally authorized pay rates, computations, and agreement with thepayroll register.(4) conduct periodic independent bank reconciliations of the payroll bank account.arrow_forwardAuditors ordinarily ascertain whether payroll checks are properly endorsed during the auditofa. Clock cards.b. The voucher system.c. Cash in bank.d. Accrued payroll.arrow_forward
- The following are typical questions that might appear on an internal control questionnaire for payroll activities: 1. Is there adequate separation of duties between employees who maintain human resources records and employees who approve payroll disbursements? 2. Is there adequate separation of duties between personnel who maintain timekeeping or attendance records for employees and employees who distribute payroll checks? Describe the manner in which each of the above controls might be tested.arrow_forwardInternal Control Questionnaire Items: Assertions, Tests of Controls, and PossibleErrors or Frauds. Following is a selection of items from the payroll processing internalcontrol questionnaire in Exhibit 5.15.1. Are names of terminated employees reported in writing to the payroll department?2. Are authorizations for deductions signed by the employee on file?3. Is there a timekeeping department (function) independent of the payroll department?4. Are timekeeping and cost accounting records (such as hours, dollars) reconciled withpayroll department calculations of hours and wages?Required:For each of the four preceding questions:a. Identify the assertion to which the question applies.b. Specify one test of controls an auditor could use to determine whether the control wasoperating effectively.c. Provide an example of an error or fraud that could occur if the control were absent orineffective.d. Identify a substantive auditing procedure that could detect errors or frauds that couldresult…arrow_forwardA large retail enterprise has established a policy that requires the paymaster to deliver all unclaimed payroll checks to the internal audit department at the end of each payroll distribution day. This policy was most likely adopted toa. Ensure that employees who were absent on a payroll distribution day are not paid for that day.b. Prevent the paymaster from cashing checks that are unclaimed for several weeks.c. Prevent a bona fide employee’s check from being claimed by another employee.d. Detect any fictitious employee who may have been placed on the payrollarrow_forward
- The following are typical questions that might appear on an internal control questionnaire for payroll activities: 1. Is there adequate separation of duties between employees who maintain human resources records and employees who approve payroll disbursements? 2. Is there adequate separation of duties between personnel who maintain timekeeping or attendance records for employees and employees who distribute payroll checks? Describe the purpose of each of the above controlsarrow_forwardWhich of the following payroll control activities would most effectively ensure that payment is made only for work performed?a. Require all employees to record arrival and departure by using the time clock.b. Have a payroll clerk recalculate all time cards.c. Require all employees to sign their time cards.d. Require employees to have their direct supervisors approve their time cardsarrow_forward) The following audit procedures are typical of thosefound in auditing the payroll and personnel cycle:1. Obtain a schedule of all payroll liabilities and trace to the general ledger.2. Scan journals for all periods for unusual transactions to determine whether they arerecorded correctly.3. Select a sample of 40 entries in the payroll journal and trace each to an approvedtime card.4. Discuss with management any payroll liabilities recorded in the prior year that arenot provided for in the current period.5. Examine evidence that payroll hours and wage rates are verified by an independentperson.6. Select a sample of 20 cancelled payroll checks and account for the numerical sequence.7. Review board of director meeting minutes to verify the salary for the chief executiveofficer.8. Compute payroll tax expense as a percentage of total wages, salaries, and commissions.9. Select a sample of 20 payroll payments and trace to payroll journal entries for name,date, and amounts.10. Examine owner…arrow_forward
- Payroll Processed by a Service Organization. Assume that you are the audit senior conducting a review of a new client’s payroll system. In the process of interviewing the payroll department manager, she makes the following statement: “We don’t need many controls because our payroll is done outside the company by Automated Information Processing, a service bureau.”Required:Evaluate the payroll department manager’s statement and describe how a service organization affects an auditor’s review of controls.arrow_forwardItems 1 through 8 are selected questions typically found ininternal control questionnaires used by auditors to obtain an understanding of internalcontrol in the payroll and personnel cycle. In using the questionnaire for a client, a “yes”response to a question indicates a possible internal control, whereas a “no” indicates apotential deficiency.1. Does an appropriate official authorize initial rates of pay and any subsequent changesin rates?2. Are formal records such as time cards used for keeping time?3. Is approval by a department head or foreman required for all time cards before theyare submitted for payment?4. Does an adequate means exist for identifying jobs or products, such as work orders,job numbers, or some similar identification provided to employees to ensure propercoding of time records?5. Is the issuance of payments to employees independent of timekeeping?6. Are employees required to show identification to receive paychecks?7. Are written notices required documenting…arrow_forwardb) You are the audit senior in charge of the audit of Malaika Company and have been informed by your audit manager that during the year a fraud occurred at the client. A payroll clerk set up fictitious employees and the wages were paid into the clerk’s own bank account. This clerk has subsequently left the company, but the audit manager is concerned that additional frauds have taken place in the wages department. Required: i) Describe six procedures which should be undertaken during the audit of wages as a result of the manager’s assessment of the increased risk of fraud.arrow_forward
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